Where does all Minnesota's tobacco tax revenue go?
Smoking kills, but tobacco revenue breathes a lot of life into Minnesota.
From funding U.S. Bank Stadium and creating the nonprofit ClearWay Minnesota, tobacco sales have generated billions in tax revenue over the years. And most of it flows into the state budget rather than helping smokers kick the habit.
Minnesota was a significant player in holding tobacco companies accountable two decades ago, filing a lawsuit arguing that these companies had misled consumers about the dangers of their products. It was the only state to pursue trial in 1998 before reaching a historic $7 billion settlement payable over the first 25 years. Tobacco companies will still be coughing up about $200 million every year forever.
Doug Blanke said it was the "biggest and most complicated legal case in Minnesota's history." Aside from financial gain, the work by Blanke, director of the Public Health Law Center at Mitchell Hamline School of Law, and colleagues in the Attorney General's Office uncovered 35 million pages of then-secret documents on how tobacco manufacturers operate — in particular marketing to youth.
Those documents are still used to fuel health policy and research. And money from the settlement keeps flowing into the state's coffer along with tobacco tax revenue.
A reader asked Curious Minnesota about one type of tobacco tax called a "sin" tax. This is also known as an excise tax, and it's one of several kinds of taxes on tobacco and now vaping products.
It's complex (because, well, it's taxes) and there are two separate categories of taxes, one for cigarettes and another for other tobacco products. These are products like cigars, chewing and pipe tobacco, and vaping products that contain tobacco.
All rolled up, taxes on every tobacco product in the state since 1957 total $11.75 billion. Taxing tobacco amounted to $605 million in 2018 alone, with an estimated $11.5 million coming from vape products, taxed since 2010. Settlement funds added another $167 million for a combined $772 million last year.
So, where does all that money go?
"Not to tobacco prevention," said Laura Smith, ClearWay Minnesota spokeswoman. Of the billions of dollars from the settlement, about $200 million, or 3%, went toward creating the nonprofit that's set to close in two years.
Most of the money is funneled into the state's general fund, which pays for education, public safety, agriculture, etc. All that tobacco cash accounts for less than 1% of the state's $45 billion general fund.
There are special pots of money for some tobacco tax revenue. In 2014, the state spent $26.5 million for U.S. Bank Stadium, generated from a one-time floor stocks tax.
Minnesota's "sin" tax ($3.04/pack) is higher than Wisconsin ($2.52), South Dakota ($1.53), Iowa ($1.36) and North Dakota ($0.44).
Every year, $22.5 million goes toward the Academic Health Research Center at the University of Minnesota, and $4 million toward medical education and research at the Department of Health. But officials said none of that funding is specifically earmarked for studying the effects of smoking— despite that being the desired outcome of the 1998 lawsuit.
"I do think, unfortunately, the money didn't go to where it should've gone — helping people who were harmed by tobacco — instead of" other places, said former Attorney General Mike Hatch.
A belief shared by policymakers is that taxing tobacco would discourage smoking. But Hatch and some researchers argue if that were the case, the state wouldn't profit millions of dollars each year on the backs — or lungs — of addicts.
Taxing sin is a big policy question, Hatch said, and it's fueling a great debate on marijuana now. But Hatch said people should "talk about the merits, not how we can get more money."
Still, the state continues fighting to get tobacco manufacturers to pay up owed portions of settlement payments. RJ Reynolds is being forced to comply after former Attorney General Lori Swason sued the business for trying to bypass the settlement.
Hatch and Blanke both said without setting aside money for ClearWay, none of the settlement money would have gone toward helping people with tobacco-related problems. The three objectives of the lawsuit, according to Blanke, were to get into the "document vaults" of the tobacco industry and make them public for the world; win some compensation for the state to treat smokers; and get the truth out about marketing to kids.
"At the time we settled, half of the billboards across the state had cigarettes on them," Blanke said.
But after the deal was reached, there were no more smoking billboards, no more Joe Camel ads or paid product placements in movies. Those ads would be replaced with anti-smoking campaigns by ClearWay.
"The catch is, we're phasing out," Smith said. "We already started winding down our programs."
Smith said the nonprofit was created as a limited life organization sunsetting in 2022. The state is working to take over ClearWay's quit hotline, and she's hopeful other solutions will be found to carry on the work of ClearWay.
ClearWay reports a 35% reduction in the adult smoking rate, from 22% to 14%, over the past two decades. And while cigarette use among teens remains low, e-cigarettes and vape products are rising in what Smith describes as a "new crisis."
"Every time there is a new generation of kids, there are new tactics and efforts to addict them," Smith said. "They (Big Tobacco) aren't giving up, and neither should Minnesota."
The state just sued e-cigarette maker Juul Labs for deceptive marketing toward youth. Gov. Tim Walz said at the Capital on Wednesday, "we will bring the righteous justice of the state of Minnesota down on Juul."
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